Top 10 Reasons U.S. Should Consider EMV
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Top 10 Reasons U.S. Should Consider EMV January 27, 2010 Randy Vanderhoof, Executive Director, Smart Card Alliance Deborah Baxley, Managing Principal, Keypoint Consulting Nick Holland, Senior Analyst, Aite Group Simon Hurry, Senior Business Leader, Visa Inc. Dave Metcalfe, Director, Debit Payment Innovation & ScotiaCard Services, Bank of Nova Scotia
Transcript of Top 10 Reasons U.S. Should Consider EMV
Top 10 Reasons U.S. Should Consider EMV January 27, 2010
Randy Vanderhoof, Executive Director, Smart Card Alliance
Deborah Baxley, Managing Principal, Keypoint Consulting
Nick Holland, Senior Analyst, Aite Group
Simon Hurry, Senior Business Leader, Visa Inc.
Dave Metcalfe, Director, Debit Payment Innovation & ScotiaCard Services, Bank of Nova Scotia
Top 10 Reasons U.S. Should Consider EMV
Welcome and Introduction
Randy Vanderhoof Executive Director, Smart Card Alliance
Who We Are
Smart Card Alliance mission To stimulate the understanding, adoption, use and widespread application of smart card technology through educational programs, market analysis, advocacy, and industry relations . . . .
Over 170 members, including participants from financial, retail, government, corporate, and transit industries and technology providers to those users
Major activities Industry and Technology Councils
Contactless and Mobile Payments Council Healthcare Council Identity Council Physical Access Council Transportation Council
Conferences, symposia, web seminars and educational workshops Web-based resources and email newsletters
Smart Card Alliance: Payments Council
Contactless and Mobile Payments Council Mission: education facilitating the adoption of contactless and mobile payments in the U.S. 37 member organizations Four active work groups:
• Consumer awareness and education • Merchant acceptance • Mobile payments • Security
Outreach to Industry Groups • Stds: GlobalPlatform, ISO/ANSI • Payment: ETA, NACHA • Security: EMVCo, FSTC • Mobile: NFC Forum, GSMA • Merchant: NRF, MAG
Today’s Agenda & Speakers
Randy Vanderhoof, Executive Director, Smart Card Alliance
Deborah Baxley, Managing Principal, Keypoint Consulting
Nick Holland, Senior Analyst, Aite Group
Simon Hurry, Senior Business Leader, Visa Inc.
Dave Metcalfe, Director, Debit Payment Innovation & ScotiaCard Services, Bank of Nova Scotia
EMV Introduction & Global Status
Deborah Baxley Managing Principal, Keypoint Consulting
Smart cards, also known as chip cards, greatly enhance security for payments
“Smart card” = plastic card with integrated circuit (microprocessor)
Chip-enabled payment products greatly enhance security through encryption and dynamic authentication
Chip cards can be contact or contactless Contact cards communicate via “contact
plate” coming into contact with terminal dip reader
Contactless cards communicate via radio frequency (RF) antenna
Dual interface cards combine both technologies to communicate either way
EMV is an open standard set of specifications for smart cards and acceptance devices
EMV stands for Europay, MasterCard, Visa, 1994 founders of standards EMVCo now jointly owned and operated
by American Express, JCB, MasterCard and Visa
Information and specifications freely available on www.emvco.com
EMV’s primary purpose to ensure globally interoperable standards for smart card based payments
Main drivers for EMV implementation: Fraud reduction Off-line authorization Purse, loyalty, other applications
Source www.emvco.com
The term “Chip and PIN” is sometimes misunderstood - PIN is not required by EMV or chip cards
Alternatives supported by EMV standards: • Online PIN: encrypted by PIN pad and sent
online to the issuer host for validation • Offline PIN: sent directly to chip card for
validation by chip – PIN never sent to host, only result is sent
• Signature only • Card determines whether PIN is required
based on terminal support and transaction characteristics
ATMs typically require online PIN Chip protects from counterfeit fraud by enabling
card authentication PIN protects from lost and stolen by verifying
correct cardholder is using the card
1 Source of logo: www.chipandpin.co.uk
Incentives are driving Europe, Asia, Africa, Latin America and Canada to EMV through liability shifts to the non EMV-compliant party
As of 1Q08, more than 730 million EMV payment cards were in use worldwide
Source: Eurosmart, Visa, MasterCard, Gemalto, EMVCo.com
Single European Payments Area (SEPA) requires 38 countries to complete the migration to EMV by Jan. 1, 2011
²/3’s of the word’s EMV cards and devices are in Europe, with nearly 50% of cards and POS and more than ²/3’s of ATMs enabled
European banks are also experimenting with using EMV cards to secure e-commerce and home banking
The UK, with its 4-year history of EMV, illustrates emerging fraud challenges
Source: www.cardwatch.org.uk/images/uploads/publications/Fraud%20the%20Facts%202009.pdf, Fraud Supplement | September | October 2009 | paymentscardsandmobile.com
Card fraud loss rate declined 48% from 18 to 12 basis points from 2001 to 2008
While overall card spend nearly doubled, overall card fraud increased 48% from 2001 to 2008
Fraud types illustrate the ongoing challenge with e-commerce, use of fall-back and international counterfeit fraud
US = #1 fraud market for UK cards
Lost/stolen Mail non-receipt Card-not-present Counterfeit Card ID theft
2001: 0.183%
2008: 0.124%
UK Card Fraud Losses Split by Type
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Deborah Baxley Managing Principal, Keypoint Consulting, www.keypoint123.com [email protected] 1.914.646.4732
Speaker Contact Information
The Experience of U.S. Cardholders Abroad
Nick Holland Senior Analyst, Aite Group
Methodology and Findings
In September 2009, Aite Group conducted a survey of over 1,000 U.S. cardholders that had traveled outside of the U.S. within the last three years.
Results indicated that the majority of cardholders had experienced some form of difficulty using U.S. cards while abroad.
The majority of cardholders that experienced a problem would alter their payment activity after the trip to use the “bad” card less.
Issues caused by incompatible card technologies (ie: magnetic stripe not being accepted in EMV countries) caused the greatest cardholder dissatisfaction.
Cash is the default action if a card payment faces a problem.
Emotional responses to card problems are high.
70% of cardholders alter their card usage behavior afterwards
The problem card is used less, even after the trip.
Incompatible Card Technology ranks highest in lost spend.
Takeaways
The magnetic stripe card is already facing acceptance problems outside the United States… this will only get worse.
Cardholders will “punish” a “bad” card by solitary confinement.
There is a considerable opportunity for forward-thinking issuers to capitalize on the gap in the market for an EMV compliant U.S. traveler card.
Implementation Options for US Issuers
Simon Hurry Senior Business Leader, Visa Inc.
US Primarily a Contactless and Mag. Stripe Environment
Current Transitional Emerging
Initial chip deployments are contactless MSD based, and designed for minimal disruption to the payments network . New generation contactless cards conform more closely to EMV standards
MagStripe
Global Interoperability Standard
Contactless
Regional Standard
Dynamic Cryptograms
EMV/Contactless
Global Standards
Flexible Form Factors
Strong Authentication
Chip Interoperability The media have reported acceptance issues with magnetic stripe cards in mainly in European chip countries
Magnetic stripe remains the default technology for global interoperability
The card brands are actively educating merchants on the importance of continuing to accept magnetic stripe transactions
However…..
US neighbors, Canada, Mexico and Brazil, are migrating to contact chip
Contactless readers are not widely enough deployed outside the USA to offer a viable alternative to magnetic stripe
An option for US issuers is a contact chip for cardholders that travel overseas
What EMV features are really needed?
Highlights of a simple implementation of contact chip for online only markets
Online authorized only, no offline approval
Does not support offline PIN
Does not support offline data authentication (SDA or DDA)
Can be supported on “cost efficient” chips
Globally interoperable
Fully EMV compliant
Optionally support dual interface for local chip acceptance
Benefits for Issuers and cardholders
Targeted issuance of contact cards for frequent travelers
Optimizes card acceptance worldwide Ensures optimal consumer experience at point
of service in chip environments Enables improved risk management on foreign
transactions Not requiring offline authentication minimizes
impact to the US personalization environment Minimizes cost and complexity of contact chip
issuance
EMV Implementation in Canada
David Metcalfe Director Debit Innovation and ScotiaCard Services, Bank of Nova Scotia
Canadian EMV Migration – Key Industry Drivers
October 2004 Visa 10 basis point reduction in interchange for chip-enabled terminals October 2007 Multilateral Multi-Lateral Project Management Group announce industry wide chip Market
Trial in Kitchener-Waterloo March 2008 Multilateral Kitchener- Waterloo Market Trial officially begins
October 2008 Multilateral Kitchener- Waterloo Market Trial officially ends. Participants expected to begin national rollout of chip.
October 2010 Visa Canadian Visa Liability Shift December 2010 Interac (Mandate) 90% of deposit taking ABMs converted
50% of non-deposit taking ABMs converted 35% of Point-of-Sale terminals (Interac Direct Payment) converted 65% of Debit cards converted
December 2012 Interac (Mandate) 100% of deposit taking ABMs converted 100% of non-deposit taking ABMs converted 60% of Point-of-Sale terminals (Interac Direct Payment) converted 100% of Debit cards converted
December 2015 Interac (Mandate) 100% of Point-of-Sale terminals (Interac Direct Payment) converted
Scotiabank EMV Project
Dedicated resources from Bank’s Project Management Office Creation of Chip
Chip Integration Office staff reporting directly to product areas (Credit Cards and Retail Deposits)
Dedicated development team with resources from all impacted systems
Scotiabank Early Data Pilot
EMV Early Data Pilot – Fall 2003 • Conducted pilot in small Canadian city with 15,000 Visa Cards • Used Early data with Visa • Minimal host changes required to approve transactions • Key learnings
Not enough terminals for customers to remember PIN
Industry Market Trial
VISA Canada, Interac Association, MasterCard, all major Canadian financial institutions, Point-of-Sale terminal providers/processors and many merchants took part in a market trial in Kitchener-Waterloo (K-W).
Kitchener-Waterloo was selected given its size, demographics and proximity to the Greater Toronto area.
Multilateral Project Management Group was established to manage the market trial.
The trial was an opportunity to test infrastructure to ensure interoperability of all systems and devices in a contained environment.
Trial announced in October 2007 (official start date: March 2008).
Trial was seen as the first phase of national conversion. There was an industry wide expectation that national rollout of chip would begin after the completion of the market trial in October 2008.
Scotiabank Market Trial Approach
Scotiabank participation was based on a phased approach due to systems implementation schedule
October 2007 – force issued limited number of Visa chip cards to staff and a select group of customers in the K-W area.
March 2008 – force issued remaining Visa chip cards in the K-W area March 2008 – started issuing debit chip cards using the following
approaches: • Branches – new, replacements, pro-active conversions plus card requests
as a result of Marketing Campaign • Marketing Campaign (direct mail and ScotiaOnline messages) – urged
customers to request cards through Call Centre, Online or by visiting branch
• Force issuance of cards through the mail
Scotiabank Key Learnings
Merchant chip education/acceptance was an issue. Significant improvement in education/acceptance as more chip cards hit the market.
Some customers unaware that a PIN is required to complete a VISA chip transaction at a chip terminal. Consumer awareness increased as media and industry attention increased. Scotiabank’s Visa communications improved awareness (Visa mailing sent out 90 days prior to card being issued, reminder mailing at 60 days).
Some customers expressed concern about having a PIN on their VISA card, as they are unable to remember a PIN. To address this issue, Chip & Signature card available (by request only).
Debit card activation for cards that were force issued was lower than anticipated. Measures are being taken with the national rollout to address this issue.
No major interoperability issues. Scotiabank took a very customer focus approach to the market trial which
proved to be very successful. Providing a positive customer experience was a key success factor.
Scotiabank National Rollout
National Rollout started January 2009. • Majority of Visa cards converted through the regular re-issue process
(conversion on expiry). • Debit cards reissued through regular process of new and replacement
cards at the branch. • August 2009 start of force conversion of remaining Debit cards.
Customer mailings prior to card conversion date. Reminder mailings sent prior to conversion date.
PIN assigned based on : 1. Existing Visa PIN 2. PIN synchronization with debit PIN 3. Random PIN
National conversion of Scotiabank Visa and Debit expected to be completed by end of 2010
David Metcalfe Director Debit Innovation and ScotiaCard Services, Bank of Nova Scotia [email protected]
Speaker Contact Information
Webinar Wrap Up and Q&A Session
Top 10 Reasons for Considering EMV in the U.S.
Fraud reduction Would improve U.S. payments infrastructure security vs. magnetic stripe infrastructure Potential exists for U.S. to become a destination for criminals and global fraud activity
U.S. and international cardholder satisfaction U.S. cardholder satisfaction diminishing when traveling internationally International cardholder satisfaction when traveling in the U.S. if EPC bans magnetic stripe
Interoperability Global migration to EMV using commercially available products and services = low risk,
proven approach to fraud reduction
Issuer positioning Potential for lost international transaction volume, customer satisfaction issues, loss of “top
of wallet” status
Innovation Initial investment in EMV is future proofing payments systems for security in long term Leverage EMV for security and interoperability of new payment methods and technologies
(ie: mobile payments, card-not-“presented” transactions
Cost-effective implementation Evolutionary approach with contactless and dual-interface cards Availability of early, online-only implementation solutions for issuers
Q&A Session
Smart Card Alliance 191 Clarksville Rd. · Princeton Junction, NJ 08550 · (800) 556-6828 www.smartcardalliance.org
Speaker Contact Information
Randy Vanderhoof, [email protected]
Deborah Baxley, [email protected]
Nick Holland, [email protected]
Simon Hurry, [email protected]
David Metcalfe, [email protected]
